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Is it the right time to invest?

The Indian stock market after hitting historic highs has begun to show signs of uneasiness as valuations have run up and earnings recovery yet to catch up to markets up move. The move to implement GST from July 1,2017 though laudable will bring in its own set of problems initially.

The consumption sector is probably the worst hit in the run-up to the Goods and Services Tax (GST). Inventory reduction has had an apparent snowballing effect throughout the supply chain. While FMCG companies tried to push inventory in the month of June through various incentives, the distribution chain is grappling with weak GST preparation, lack of awareness and the fear of having to bear the brunt of adverse tax disparity after July 1. The consumer durables sector is similarly facing uncertainty on the inventory management side.

Meanwhile the Indian economy has been growing at 7%+ and this trend is likely to continue in the near term. With no growth in Europe and US and slow down in China the Indian markets are in a sweet spot. The growth in GDP will make sure that there wont be much fall in the Indian indices. There is so much of money coming into the equity market through FII’s and mutual funds and limited growth opportunity elsewhere there is unlikely to be any major correction.

The question that people are asking is “ Is it the right time to enter the market. In our previous newsletter in April we had written “ We had been maintaining our stand that though Indian stock market is expensive we continue to maintain our stand that there is unlikely to be any major sell off’s as there are no better markets than ours where GDP is growing at 7%+. In any case even if there is a correction of say 10% which we believe to be the worst case scenario we should be ready with a Buy list. Of course retail investors would not have the idea as to which stock is a good buy. It is here that sublime financial can help you. We are in the industry for many years and have seen the bull and bear markets and can help you spot the right stocks”.

Many new investors are asking the question as to whether this is the time for new investors to enter the market. The answer to that question is you cannot time the market and no one has timed it to perfection. Any correction in the market should be viewed as an opportunity and not panic and sell. When such opportunity comes across take advantage of it and buy quality stocks at reasonable prices. Even if the markets are falling and if you pick the right stock then the stock can go against the market trend and move up. We find value buying opportunities in the pharma sector and is also bullish on home textile exporters which we believe are trading at reasonable levels. Such careful analysis and spotting the right opportunities will help you to laugh all the way to the bank. So instead of fearing about market correction and staying in the sidelines which will only frustrate you. We would recommend a disciplined approach which will guard you and also help you to make money irrespective of where the markets are headed.

Our View: The nifty at the current value of 9578 trades at about 24.19x its FY17 EPS. History has shown that whenever nifty crosses 22x its trailing twelve month EPS it is better to be cautious as the peak valuation was around 28x its twelve month trailing EPS in 2000.Even if you had invested at 28x in 2000 the markets have grown about 5x from then in 17 years.However investors should not be too pessimistic about the markets as global growth engine has slowed and India being one of the fastest growing economy is bound to see sharp pull backs when there is a correction. Investors must be ready to latch on to some good stocks when there is a correction and must have 30% of their portfolio’s in cash that will help them to go for bottom fishing and make substantial gains. Always remain 70% invested while maintaining 30% cash which will help you to cushion any fall in stock markets beyond anticipated levels. While we don’t foresee a correction beyond 5-10% in the near term global risks and rising geopolitical developments continue to pose risk to the markets. So it is better to always remain on guard and save our hard earned money. Investors must not remember the two golden rules of Warren Buffet i.e Rule 1: Don’t loose money and Rule 2: Don’t forget rule1.

For more information on market or regarding portfolio discussion, please mail us at jayesh@sublimeadvisory.com or call us at 8553585156